MUMBAI : Financial services firm Avendus Capital on Thursday launched a $1-billion fund to invest solely in companies that promote environment, social, and governance (ESG) values.

The Avendus India ESG Fund, housed under the company’s alternate asset management arm, will raise money from domestic and international investors.

The fund said it will invest on the basis of predetermined ESG factors, alongside in-depth financial analysis, with the aim of generating long-term risk adjusted returns. Avendus had said in August that it plans to launch an ESG fund.

ESG investing, while seeking positive returns, also considers and evaluates the long-term impact that business practices have on society, the environment, and the performance of the business itself.

Corporate governance in India attracted attention in 2018 with questions about corporate and board practices at ICICI Bank Ltd, Infrastructure Leasing & Financial Services (IL&FS) group and many midcap companies.

Last week, Mint reported that mutual fund veteran Ajit Dayal, former Tata brand custodian Mukund Rajan and at least three other former Tata group executives have floated a $1-billion ESG fund with Quantum Advisors mutual fund to invest in listed companies.

According to Andrew Holland, chief executive at Avendus Capital Public Markets Alternate Strategies, Indian investors have warmed up to the idea of ESG values.

“Six months ago, a lot of investors would not be too enthused by ESG. However, more recently, when I spoke to investors, ESG is resonating well with them because of the fact that we are looking at these issues and scoring companies," he said.

Globally, investors are increasingly looking at ESG parameters while investing in companies and the same trend is expected to be replicated in India, said Abhay Laijawala, managing director and fund manager, Avendus Capital Public Markets Alternate Strategies.

“Today, 26% of total assets globally are managed under Sustainable Responsible Investing ($22.9 trillion versus $13.6 trillion in 2012). The data points justify the fact that investors, globally, are increasingly seeking to invest in companies that are compliant with sustainable principles. We strongly expect this trend to be replicated in India," he said.

Avendus plans to close the first domestic tranche of fund-raising by the end of February.

Of the $1 billion target, 30% will be raised from domestic investors.

The fund will evaluate the top 100 NSE stocks and invest in those which make it to the top 50 in ESG parameters, said Laijawala.

The fund has already started making investments.

“Unacceptable ESG performance (i.e. a ranking worse than 50) cannot be offset by attractive financial parameters, no matter how attractive they are. Such companies go into a bucket list for engagement," Laijawala said.

The drive towards an ESG fund is also driven by the fact that companies that are well-governed and responsible and those that deliver superior risk-adjusted returns have a positive correlation, he said.

“Investors are beginning to ask the right questions. They are seeing things world over. With the number of governance issues and valuation concerns, everyone sees this as the way forward and wants to see it become mainstream," said Laijawala.

Avendus has tied up with corporate governance and proxy advisory firm Institutional Investor Advisory Services to put in place a ranking framework covering ESG principles.

Close